Thank You

Error.

Corporate chiefs are in a somber mood as the euro-zone debt crisis continues to support an environment of uncertainty. But, at last week's World Economic Forum in Davos, Switzerland, there were hints that sentiment is improving—albeit only marginally.

Don't call it optimism, or even cautious optimism. Hope might be a better word. After all, the backdrop to this year's forum—attended by hundreds of world leaders, politicians and chief executives—is precarious. Greece continues to play a game of brinkmanship with its creditors, holding Europe to ransom, while the Continent's banks must still confront questions over capital.

"It is not like 2009, when everyone was looking around for someone to blame," says Valerie Germain, a regular attendee at the forum and managing partner at executive-search firm Heidrick & Struggles.

Some executives say the difficulties of the past couple of years have taught them how to respond to the current challenges. "We pretty much know, on paper, what to do" to deal with financial crises, says Ferit Sahenk, chairman of Turkey's Dogus Group—whose companies include publicly traded entities like auto-retailer and service-provider Dogus Otomotiv Servis ve Ticaret and real-estate investment trust Dogus GE Gayrimenkul Yatirim Ortakligi.

Sahenk views the prevailing environment as an opportunity for companies in emerging markets to play catch-up with those in the developed world. However, emerging markets aren't entirely immune to Europe's ills. CEOs in China and India are significantly less confident in their companies' prospects than they were 12 months ago, according to the findings of PricewaterhouseCoopers 15th annual global CEO survey. That's one of the downsides of globalization.

Company bosses largely are philosophical in the knowledge that macroeconomic events are beyond their sphere of influence, so they are concentrating on the areas of their businesses that they can control: executing efficiencies, driving revenues and maintaining margins.

Of course, some executives are decidedly more downbeat or upbeat than others. "When I talk to my colleagues in American businesses, they are pretty optimistic," says Dell Chief Executive Michael Dell. "There are pockets of weakness and challenges here and there. But at the end of the day, we have to [manage] those parts of the business that we can control."

That's the kind of attitude that European leaders were looking to foster in Davos, where politics and business intersect, as they seek to rebuild confidence in the euro zone. Olli Rehn, the European Union's economics commissioner, spoke of releasing "Keynesian animal spirits." But companies aren't ready for that just yet, and he realizes that there still is much work to be done.

GREECE CONTINUES TO NEGOTIATE the terms of a deal with private-sector holders of its sovereign bonds. However, the discussions have dragged on for weeks, thanks to intransigence from all quarters, forestalling Athens' ability to meet a 14.4 billion-euro ($19 billion) Eurobond redemption March 20. The sticking point in negotiations is the coupon Greece will pay on new bonds.

Rehn expects a deal to be reached by the end of January—that's just days away—rather than in February. Some economists don't rule out the prospect of default, although most commentators say it's unlikely. Skeptics say that a default would allow Europe to "cauterize the wound" that continues to be its source of pain, and concentrate on real issues. For most, that remains unthinkable.

The part that Germany will play in a definitive resolution still isn't entirely clear. Chancellor Angela Merkel offered no fresh insight in her opening address, and Finance Minister Wolfgang Schäuble reiterated Germany's opposition to common Eurobonds, while euro-zone members still exercise national fiscal policies. But anyone who expected any more from Davos was misguided: It isn't a place where policy decisions are made. Just as important as the names of the people who attended this year were the names of those who didn't: the leaders of France, Italy and Spain, among others.

Germany, Europe's largest economy, attracted criticism for its handling of the crisis from financier George Soros.

Soros doesn't accuse Berlin of acting in bad faith, but he worries that the austerity it wants to impose will push Europe into a deflationary debt spiral. "In a closed system like the euro-clearing system, creditors must always be balanced by debtors," he contends.

That view isn't shared by everyone. Numerous observers endorse Germany's reluctance to write a blank check, for fear that profligate nations then wouldn't have incentives to reform.

The incentives will be strengthened this week, however: Europe is set to adopt a new compact with enforcement powers to ensure fiscal discipline. But the dangers of austerity include high unemployment and social unrest—and there may be more to come.

"People keep saying [that] the difficulty with the euro area is, there is no fiscal integration," says Raghuram Rajan, professor of finance at the University of Chicago Booth School of Business. "There is no political or cultural integration, either. That has to come first, to some extent, for people to feel that they are willing to give money to each other. Greece to Germany is not like Alabama to California. They are different."

Mexican President Felipe Calderón, whose country holds the revolving presidency of the Group of 20 developed and developing nations, called the debt crisis a "time bomb," and urged the implementation of a firewall designed to prevent it from spreading.

EUROPE HAS BEEN RIDING the crest of a mini wave since last month, when the European Central Bank executed a €489 billion long-term refinancing operation that essentially provided a quick fix to the liquidity problems of Europe's banks. While loosening some interbank lending, the buoyancy has filtered through to equities: European stocks are up 4.4% in January after losing 11% in 2011.

Another round of long-term refinancing is due at the end of February. There are worries it could be effectively utilized to backstop government debt, but the European Central Bank seems unlikely to let that happen.

ECB President Mario Draghi describes sovereign-yield spreads–reflecting the interest rates that countries pay on their debt—as "the most potent engine for reform."

Italian Prime Minister Mario Monti is proving that austerity is workable. The spread on Italy's 10-year bond has dropped from around 7% a few weeks ago, to below 6%. Other countries are finding it tougher, and there are still huge doubts about Spain's ability to meet its fiscal targets.

University of Chicago's Rajan worries about whether Europe's politicians have enough maneuverability to get ahead of the problem: "I think the corporations here are a little more optimistic than economists or authorities, which suggests at the micro level, things are improving—but at the macro level, there are overhangs."